Padgett Stratemann is now RMSAs San Antonio becomes a bigger player in Texas Business, more national firms are entering this market. A national firm does not start from zero. RMS (http://rsmus.com/) purchased Padgett. This gives the buyer a large client base to start with. Typically the local partners have made a handsome profit on their time at the firm. But seeking to recoup the investment, the buyer typically raises fees knowing some business will be lost. RMS has re located from North Loop 410 to 1604 and 281. Renee Foshee, a tax expert with the firm, is the current SA CPA Society President.

Turner Cleveland PCTerry Cleveland has addressed our students. Two of our graduates are employed with at this firm.

Ridout Barrett CPAsTony Ridout has visited and addressed our students many times. We have placed graduates with Ridout for several years.

Financial Consulting Firms

Aventine Hill Partners, Inc.Beth Hair CEO founded Aventine in San Antonio in 2009. The firm now has offices in Dallas, Austin, San Antonio, and Houston. She formerly was with RGP.

Resource Global ProfessionalsSusan Hough has been to campus and spoken to our students. She is the San Antonio Manager of RGP. RGP and Aventine are not CPA firms. Instead they offer contract specialists for firms needing specific tasks such as compliance or Controllerships.

Accounting Information

Acounting Today This is an independent site for accounting news regarding firms and current issues.

Accounting Certifications

Certified Information Systems Auditor CISANow that everything is literally on the computer and cyber security becomes a prominent issue, I see more and more accounting professionals with this designation. Previously known as the Information Systems and Audit Control Association, it now goes by the acronym ISACA.

Geo Politics

Institute for the Study of WarThe Institute for the Study of War advances an informed understanding of military affairs through reliable research, trusted analysis, and innovative education. We are committed to improving the nation’s ability to execute military operations and respond to emerging threats in order to achieve U.S. strategic objectives. ISW is a non-partisan, non-profit, public policy research organization.

StratforThis Austin, TX based site was begun by an ex Texas State Professor.

June 29, 2011

In case you missed it Former IL Governor Rob Blagojevich was convicted of attempting to sell an appointment to Barack Obama's vacated Senate Seat. He got a hung jury on the first trial except for one count. Then he did not take the stand, this time he did.

As the article says, this usually only happens in movies rarely in real life. Defendants believe they can work the same magic on juries that they did on voters. But let's cut to the chase

The Defense

This is the kind of political wheeling and dealing that is common in Illinois and around the country.

The Prosecution

Selling a Senate seat and shaking down a children's hospital (for a campaign contribution) is not a gray area, it's a crime.

Blago

I frankly am stunned. That kind of stuff was a crime? Since when?

Comment

As the President likes to brag, I'm from Chicago! Though I must admit I have not heard him say that lately...Blago is the second IL governor in a row to go to jail though the sentencing is not done yet.

I am convinced that a subscription to the WSJ needs to be mandatory for all accounting and finance students. That would lead to required reading and discussion of current topics.

I am also convinced that the existing accounting textbooks are about thirty years out of date. Mind numbing exercises involving odd combinations of LIFO and FIFO pricing seem obsolete in these days of bar coding and point of sale database computers. Does one's career really hinge on calculating the liability for cereal box coupons for customers to obtain the latest movie themed toy? I think not.

What I do think is that the current course profiles are way way short on the topics of selling all kinds of securitized debt, leverage, and derivatives. Let's take a quick stroll through the last two days of the WSJ reports.

June 27 2011

The real story is not that Greece seeks to sell everything from islands to airports but just how wide their circle of creditors really is, more on that in the June 28 edition.

On page C1 Greece considers all sorts of debt juggling such as insisting bondholders re invest half of the maturing proceeds, ie, a structured 50% default.

On the same page Stifel Financial is under investigation for selling now worthless securities to Wisconsin School Districts. This is the precisely the sort of article that requires critical thinking, an understanding of credit and derivative markets, and leverage, all at the same time. Read about it at

In 2006 the School Districts bought the CDOs collateralized debt obligations to 'generate returns that would help them meet health care obligations and other retirement liabilities.' Now stop and think, in other words, the Schools were under water, had more liability than they could pay. So what did they do, well they took the cash they had, $45 million, borrowed $165 million from Depfa, a German bank, believing that after their own interest costs the 'returns' from the CDOs would fund their liabilities.

Now class, why is such a transaction sheer folly? Because higher returns in debt only come from assuming higher risk. Thinking that one can leverage with 75% debt, three to one, and still come out ahead, is naive at best. So one is borrowing at three to one to buy another debt instrument that is probably leveraged much more than that or more if in fact there was any equity in the CDOs.

Incredibly the CDOs carried an investment grade rating, more than Baa. Yet the suit alleges the Districts were told it would take '15 Enrons' before they could lose any money. Well it took a lot less than that, today the CDOs are worthless, their $45 M is gone as is the $165 M from the German bank. And of course the German bank wants to be repaid.

This genius scheme was hatched by the Royal Bank of Canada. Stifel sold 'slices' of the CDOs to the Districts. As you can see this is debt stacked upon questionable debt. If anyone can't pay, everyone loses.

Now critical thinkers, why would all these supposedly reputable firms like RBC and Stifel, get into such a mess, and what were the CFOs at the School District thinking? This is my point, clearly the Financial Professionals at the schools were Babes in Toyland to think this would work.

Well, here is your answer. RBC made fees by re packaging the loans into CDOs. They made even more by creating various divisions or tranches, you know the same way General Mills makes seventeen different cereals from the same kernel of wheat. RBC then promoted these CDOs to former conservative firms like Stifel. With brokerage commissions a long gone relic of the landscape, firms like Stifel were eager to get in on the mortgage money machine.

Meanwhile school districts in Wisconsin had so over promised their employees golden packages of health care and retirement there was no way they could pay for it. What to do? They were sold the idea that they District could borrow three to one, buy a very high yielding CDO, so high that that the returns would pay both their borrowing costs to the German Bank AND bring in enough money to pay the health care and retirement benefits. They would have had a better chance at the horse track....

But back to why the firms would do such a thing.

RBC marked up the bonds they re created from mortgages. The more varieties they created the more they made, think Salem, Winston, Marlboros, all from the same tobacco leaf but all variations on a theme. Then they solicited naive brokers like Stifel. RBC marked up the bonds to Stifel as RBS acted as a principal not an agent. I promise, there was no commission shown on that trade confirm. Then Stifel sells the CDOs to the School. Stifel is acting a Principal so again no commission on the trade confirm. And you can bet (gee a lot of betting going on here, right?) Stifel and RBC garnered feeds for 'arranging' the loan from the German Bank. The Bank of course charged a higher rate of interest, why else would they be in Wisconsin instead of say Stuttgart? So everyone had cut themselves in by raising the price as the CDO was passed around. And even more debt was created as all were betting on what may have well been mortgages with zero equity to begin with, why else would they be worth nothing today?

Now, another reason I told you all that was to make this final point about just how far brokers have come from what they used to be. In 1984, I believe it was, I worked for Stifel for a few months. Stifel is one of three brokers headquartered in St. Louis. They were originally a conservatively run mid west municipal underwriter and broker. They made a quiet but respectable living brining sewer and water bonds to market and selling them to income customers. I was buying Ginnie Mae bonds for instutional clients at the time. Back then those really were government guaranteed. But Stifel was so unprepared they could not properly transact the trade. A confirmation would be cancelled and replaced sometimes multiple times on the same trade. There is a (whoops make that there used to be) a considerable amount of information about the bond pool on a trade ticket including mortgage pool numbers of speeds of paydown and such. My manager friend and I ended up in the St Louis office where Stifel decided that GNMs were not a product they wanted to deal with. I parted their company and went on to successfully trade tens of millions of dollars in bonds via another firm. But my point here, is that a mere 30 years ago Stifel would not do a guaranteed Ginnie Mae. Now the sky is the limit, they don't really know what they were dealing in.

And so, RBC claims it acted appropriately. Stifel claims the problem is the structure of the instrument, not their marketing (hey I drove the getaway car, I didn't actually rob the bank), the German Bank has a worthless loan, and the School Teachers have a claim on $45 M less than they had. Welcome to Ben Bernanke's Stimulus World.

June 28, 2011

On the front page, Bank of America, whose stock has dropped one third this year, is paying $8.5 Billion to settle similar claims.

on page C1 we have my favorite indicator. A NYC Maserati dealer reports only 15 sales in June, down from 23 in April.Well there you have it, demand for luxury goods which we have been tracking, fall . Wall Street layoffs increase amid lower 'trading profits.'

Auditors have difficulty confirming bank balances in China.

The Treasury Auction goes poorly, the long bond down 200 basis points in two days.

Groupon amassing cash by slow pay to creditors, citing high marketing costs. Hmm, sounds like AOL redux to me, remember all those AOL CDs we used to get in the mail?

Do you know Gretchen Morgenson? She is a financial journalist now writing for the NY Times. Her latest endeavor is about the meltdown entitled Reckless Endangerment..

She and co-author Joshua Rosner focus on Fannie Mae and its head James Johnson in the 1990s. The government clearly loaned money to people that could not afford homes. This inflated home prices making money for everyone in the game. That is until the home owners stopped paying and the game ended. We are not out of the woods yet. I suspect we should make several of these books required reading.

June 27, 2011

Apparently the new owner never had the money to really fund the team and is now mired in a contentious divorce.

And this team does not have a mega expensive stadium like many others. While this one seems to have owner issues I have to wonder how the rest will do in a downturn with their expensive players and stadiums. And that is across the different sports.

I watched several of the clips. What I want you to observe is not so much what they say as the mechanics of recording the event. If the person is not wearing a microphone it is hard to hear them. If the lighting is not uniform the appear to be half in the dark. It was difficult to understand them, it would have been much better to have a script crawl at the bottom se we could read what they said; in some cases there was background noise going on.

This also highlights what I have said in class. You need to be ready to speak on a subject you have mastered on a moment's notice. What if someone asked for your favorite quote and you did not have one? Ditto your favorite book, song, movie, inspiration, etc.

I have suggested we need a proper audio video room at the new campus for just such a purpose.

Another example of terrible US tax policy. This is why there are billions in US corporate cash offshore. As the video concludes, nobody pays the 35% tax rate, they hire legions of accountants to avoid doing that. So the rate as most high rates do, just encourages creative tax avoidance schemes to avoid the tax.

To Die in Mexico is an up close look at the mayhem going on just south of our Border. The author, John Gibler, lives in Mexico. He blames the US and Mexican governments for most of the problem as well as the ill founded drug policy which has created the narco gangs.

He estimates the net profits in drugs at between $30-60 billion or about what the oil income is worth.

We have a failed state offering little future for some 120 Million people. This will not work and the problem needs to be addressed immediately. Meanwhile we are spending billions on Afghanistan which I doubt will be any different once we leave than when we arrived.